CVS Health Corp. is reportedly under pressure to look into splitting into two separate entities, potentially separating its retail arm from its pharmacy benefit manager (PBM) business. This comes after several years of its combined operations model. However, taking such a step comes with considerable risks that may potentially unsettle its current market standings.
Here are a few reasons why such a breakup might be risky:
1. **Loss of Synergy**: The main reason CVS’s original merger came into existence was the potential to integrate and create synergies between the two businesses, providing a seamless experience for customers and clients. Disentangling the two could mean potentially losing out on this benefit.
2. **Possible Decrease in Market Power**: Currently, as a combined entity, CVS has significant market power, with a major presence in both retail pharmacy and PBM. Splitting might decrease its leverage and influence in the market.
3. **Operational Complications**: Breaking up would require a significant overhaul of operations. This could lead to distraction from primary business operations and could be costly and time-consuming, requiring new leadership, personnel changes, and the separation of integrated technology systems.
4. **Regulatory Scrutiny**: The breakup would likely attract regulatory scrutiny and antitrust considerations, which could lead to delays or even block the proposed deal.
5. **Investment Implications**: A breakup might impact the confidence of the investors depending upon the direction the separated companies take. It might also create uncertainty about future performance of each business
